Central Garden & Pet Company
Q4 2020 Earnings Call Transcript

Published: 23 Nov 2020

[Operator:]

Ladies and gentlemen, thank you for standing-by. Welcome to Central Garden & Pet’s Fourth Quarter Fiscal 2020 Financial Results Conference Call. My name is Victor and I will be your operator today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. As a reminder, this conference call is being recorded. I would now like to turn the call over to Friederike Edelmann, Vice President, Investor Relations. Please go ahead.

[Friederike Edelmann:]

Thank you, Victor. Good afternoon, everyone, thank you for joining us. With me on the call today are Tim Cofer, Chief Executive Officer; Niko Lahanas, Chief Financial Officer; J.D. Walker, President, Garden Branded Business; and John Hanson, President, Pet Consumer Products. Our press release providing results for our fourth quarter and fiscal year ended September 26, 2020 is available on our website at ir.central.com. Also on the website is the GAAP to non-GAAP reconciliation for the non-GAAP measures discussed on this call. I would like to remind you that statements made during this conference call, which are not historical facts, including EPS and other guidance for 2021, expectations for new capital investments, product introductions and future acquisitions are forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from those implied by forward-looking statements. These risks and others are described in Central’s Securities and Exchange Commission filings, including our annual report on Form 10-K expected to be filed tomorrow. Central undertakes no obligation to publicly update these forward-looking statements to reflect new information, subsequent events or otherwise. Now, I will turn the call over to our Chief Executive Officer, Tim Cofer. Tim?

[Tim Cofer:]

Thank you, Friederike. Good afternoon, everyone, and thanks for joining the final earnings call of our fiscal 2020. Before we dive into the specific results, I wanted to provide some thoughts on the year and why I’m more confident than ever in our company and the industries in which we operate. This has been an extraordinary fiscal year. COVID-19 tested the world and our business in ways we could not have predicted and presented the most challenging operating environment in our company’s 40 year history. And yet, despite the uncertainty that the coronavirus continues to present each day, our people have seamlessly navigated the challenges and opportunities, and we have delivered the strongest year in our company’s history. These historic results were not by happenstance. They are a result of the continued dedication of our people, the strength of our industries, unparalleled consumer demand and the early results of our long-term strategy. Over the past fiscal year, I’ve been proud to witness how our teams prioritized the safety and wellbeing of their colleagues while also responding to the constant changes to ensure our business can continue to run efficiently and with excellence. It’s been a chapter that has reinforced our commitment to our employees and their unwavering dedication to each other and our consumers. I continue to be sincerely grateful to our employees for their commitment, creativity, and collaboration I’ve seen throughout the year.

[Niko Lahanas:]

Thank you, Tim. Good afternoon, everyone. Net sales for the year increased to a record $2.7 billion, up 13% driven largely by organic growth. Acquisitions namely Arden purchased in our second quarter of 2019 and C&S, which we closed in our third quarter of 2019, together added $58 million of net sales in the year. Our overall organic growth of 11% was attributable to both segments with most of the growth coming from our distribution businesses, dog treats and chews, wild bird feed, as well as controls and fertilizers. And as Tim mentioned, growth in both segments was aided by gains in e-commerce. These benefits were partially offset by the impact of exiting fashion decor pottery in the fourth quarter of 2019. Consolidated gross profit for the year increased 13% to $797 million, also driven by strength in both segments. Gross margin grew 10 basis points to 29.6%, thanks to net favorable product mix, partially offset by higher COVID-19 related costs. SG&A increased 8% to $599 million, but declined 100 basis points to 22.2% as a percentage of net sales. The decline as a percentage of net sales, which largely driven by pandemic reduced promotional opportunities and travel. Operating income for the year increased 30% to $198 million and our operating margin grew 90 basis points. EBITDA for the year increased 25% to $253 million, driven by favorable product mix and overhead efficiencies, partially offset by increased costs for key commodities, labor, and freight. Other expense was $4 million compared to other income of $200,000, primarily due to a $3.6 million non-cash impairment charge in the third quarter of fiscal 2020, in conjunction with two of our joint venture investments that were impacted by the COVID pandemic. Net interest expense landed at $40 million, up from $33 million a year ago, driven primarily by lower interest income due to lower market interest rates.

[Operator:]

Our first question comes from William Reuter with Bank of America. Please proceed with your question.

[William Reuter:]

Good afternoon. My first question is, is there – I understand that this question I’m going to ask is challenging, but is there any way for you to think about what you believe favorable weather may have contributed to lawn and garden sales in the fourth quarter? So if we were to somehow try and normalize that or in the back half of the year?

[J.D. Walker:]

Hi William, it’s J.D. I’ll take that question. It is difficult to assign a number that – to that, there are a number of different causal factors that impacted the business in Q4, weather being one. Certainly, we saw an extended season and continued ordering our customers stayed in the business throughout the summer, which very much engaged. And we also saw the consumers very much engaged. So an increase in household penetration continued to drive the business during the quarter. But we did have some headwind, at the same time, we had, as mentioned, we had some supply chain challenges keeping up with demand. But people staying at home, some of the leftover remnants from COVID, some of the impact from COVID. We certainly saw that during the quarter. So we had so many causal factors. It’s difficult to assign a specific number, to weather, it certainly was favorable for us, but I’d be speculating to put a specific number on it.

[William Reuter:]

Yes. I understand. It’s tough. Okay. So in terms of you mentioned that you have a challenge in terms of your employees and COVID, are there certain of your facilities that are closed right now? Or are there some that you are having such a shortage of employees that are able to work that you’re actually not able to operate at the capacity you’d like to right now?

[Tim Cofer:]

Sure. I’ll take that William. Thanks for the question. This is Tim Cofer. Overall we feel, I would say as good as anyone can feel in this pandemic environment. We are clearly not immune to the COVID situation. And I would say even of late, if I talk beyond the quarter and just the last few weeks, similar to what you’ve seen across the United States, we are seeing an increase in positive cases in our workforce. The good news is, to your question, we are through the quarter, having all facilities still operational. We have had temporary shutdowns, William, across our facilities, be it manufacturing facility or a distribution center. We’ve had temporary, call it one day, half day, and a couple occasions more than a day, where we’ve gone in done a full shutdown, done a deep clean, and then bring people back to work. So we’re treating it very much case by case. The hotspots you see broadly in the United States given our footprint, we have a broad footprint really from coast to coast, north to south. We are seeing more cases in those hotspots that you see. As I said, in my prepared remarks, we’ve also reinforced our safety measures, ensuring obviously all the right PPE. And then with regard to our non-frontline workers, the overwhelming majority of those continue to work-from-home. And obviously that gives us additional reassurance on their safety. So that’s the overall color on our situation.

[William Reuter:]

Yes, that’s great. That’s very helpful. And then just lastly for me, historically, you guys have been very disciplined. You try to pay six to nine times. It seems like multiples are way higher than that right now. And you’ve got a ton of cash. I guess, how do you try and balance that maintaining discipline with regard to paying – what type of multiples might be reasonable at this point versus the fact that you do have so much cash?

[Tim Cofer:]

Yes. Well, look, first of all, you said it in your question, I mean, we will remain disciplined buyers. And at the same time, we acknowledge the premise of your question that given I would say the overall interest in our industry’s garden and pet, some of the additional dynamics with private equity, et cetera, prices can go a bit higher these days. Next week, I encourage you to join us at our Investor Day, both Niko and I will talk more about our M&A strategy kind of our priorities in the M&A area. And I would say, we are definitely willing to pay a higher multiple than the range you quoted for the right asset in core and adjacent categories, if it’s – in particular has the attributes of growth accretive and margin accretive to our portfolio.

[William Reuter:]

Great. Very helpful commentary. Thanks a lot.

[Operator:]

Our next question comes from Bill Chappell with Truist Securities. Please proceed with your question.

[Bill Chappell:]

Thanks. Good afternoon. Just I was interested, as you talk of M&A, a lot of the M&A up for the company over the past three, four years has been focused on expanding and not only M&A, but I guess new business has been on private label. Both I guess, in pet and in garden. And I know you already had a pretty sizable business in private label garden anyways. So at the same point, we’re hearing a lot of in the pandemic consumers trading up more towards brands and away from private label to trusted, or they have more discretionary spending or what have you. So can you maybe help us understand how that’s impacted your business? I mean, have you seen consumers trading – I mean, growing faster at your brands versus private label, has that affected margins? Are you looking to maybe deemphasize private label and focus more on brands as you go forward? Any color there would be great?

[Tim Cofer:]

Sure. I’ll start. And the others can jump in as appropriate, Bill. I think certainly, in fiscal 2020, we’ve seen broad-based growth. So as you look at our business, Bill, you’ve followed us for some time. Break it into three buckets, our branded business, our private label business, and our distribution business. In all three cases, we saw a robust growth and you’re within a single-digit type of differences between the three. I do think, obviously branded business in general, I think is the greatest point of competitive advantage and the greatest opportunity to build margin and favorable mix over time. You would know that our distribution business in particular is one that while it’s a nice asset to our business and provides many sources of competitive advantage, of course, it is margin dilutive. From a private label standpoint, it really depends on the exact customer and category. Not in all cases, is it dilutive. It’s really on a case by case basis. So overall, good strength across, I actually like the fact that we’ve got this broad portfolio, that plays heavily in branded call it two-thirds of our business in branded, and then the other third in private label and distribution. But we’re seeing growth in all three parts of our business on both the garden and the pet side. Any other color, guys?

[J.D. Walker:]

Tim, this is J.D., I’d just build on your comments. I would say that, it does vary by customer, and I think we’re uniquely positioned, because we do have the branded. We’re a branded manufacturer, a private label manufacturer, and a distributor to really provide unique and differentiated solutions for each retailer. So, depending on what their goals and objectives are we take a category management approach. And I think that’s one of the reasons why we’ve seen growth across all three segments of our business.

[John Hanson:]

And just – this is John, and just to build on that. In the pet business, we’ve saw a strong double-digit growth across branded private label and distribution again. So, feel very good about the mix and our capabilities in all three.

[Bill Chappell:]

Got it. And then I guess, related, and maybe this is something you will talk about more, or this is something to talk about more next week, but is there a thought about long-term margin goals or is you running three kind of distinct different businesses where it’s more about just growing the top-line unless and the mix will fall where it ducks?

[Niko Lahanas:]

No, I mean, Bill, this is Niko. The way we view it is, and we’ll get into this more next week when we talk in depth about our financial algorithm. We’re always looking to expand margins, and really that’s – really how the P&L is going to work best in relation to our algorithm where the bottom line has to grow faster than the top. And in order to do that, we need to expand margins. So, we go into every planning cycle with the intent of expanding those margins. We’ve not set goals to the street in terms of where we’d like to be, but I think it’s more of a continuous improvement mindset where every year we’re looking to expand those margins across all of our business.

[Bill Chappell:]

Got it. And then go ahead. I’m sorry.

[Tim Cofer:]

Yes. Good. And Bill to your point and building of what Niko said. I mean, we will give you a little more color next week on what those focus areas are? What those drill sites are. We’ll give you some very specific examples of some in flight initiatives in that arena. And for me, it’s about generating that cost savings really to do two things. One is to drop it to the bottom line and expand those margins. And the other is to create a more of a virtuous cycle where we can invest more in those brands and in those positions. There is opportunity to invest more to drive organic growth. And we’ll talk about both those things next week.

[Bill Chappell:]

Great. And then just last one for me, is there a way, as I look at kind of the non-GAAP $2.20, you did this year to the non-GAAP $2.04 a better is Dickinson kind of drop next year to bridge that of how much of that is coming from higher re-investment versus how much of that is just tough comps?

[Tim Cofer:]

It’s a number of things, Bill. It’s not only, where I would start is, yes, we’re going to be comping a record year for us. And then, as we look into 2021, it’s really going to be an investment year around CapEx, as well as, more promotional spend. And then there’s the uncertainty with COVID, the vaccine, the timing of which, what will be the consumer behavior based off of having a vaccine. We also had an incredible weather year for garden and for some of the pet businesses as well. And then the other piece too, is we are seeing inflation on the horizon. We started seeing it in 2020. We’re seeing it materialize in 2021. We took some price. We have plans on taking price in 2021, but the timing of that can get tricky. So, you don’t always get your price increase, right when the inflation hits. And so we’re seeing that that happened. So, all of those sort of headwinds caused us to land at that $2.05 or better mark. I couldn’t really, disaggregate it for you in terms of how many pennies each bucket is at this stage.

[Bill Chappell:]

Got it. Thanks so much.

[Operator:]

Thank you. Our next question comes from Peter Grom with JPMorgan. Please proceed with your question.

[Peter Grom:]

Hey, good afternoon, everyone, and congrats on the results. And I hope you all have a happy Thanksgiving later this week. So Tim, and maybe we’ll get to more of this next week, but I was hoping you could share a little bit more around the brand building and eCommerce capabilities that you mentioned in the press release on your 2021 outlook. I mean, is there anything you can share on what you plan to do differently, brands or categories that you are – maybe more focused on now than you’ve been before, and then just kind of how these investments frame your long-term outlook for the business?

[Tim Cofer:]

Sure. Well, again, Peter, to your point, hopefully it’s in a little additional incentive to tune in next week. We are going to be talking more about it. And I’m going to give some real specifics, as well as, John and J.D. as they take you through their businesses. But let me give you a little bit starter today. I think, when you talk about eCommerce, I start with really the concept around capabilities. So, one of the things we’re doing this year is in fiscal 2020, and it’ll continue obviously into 2021 is making sure we’ve got the right people to begin with. And we’ll talk to you and give you some very specific examples of new hires that we’ve done in our organization to augment that capability and then really training and development. So, I’ll give you some specifics next week around a kind of broad organizational up-skilling effort we’re doing around managing the eCommerce flywheel. As you would well know, this is a company that has enjoyed great success over the last four decades, primarily through a distribution and brick and mortar based model. And so there’s some pivots that are required organizationally across sales, across marketing and supply chain, to be sure that we’re a future-proofed company in these areas. And so we’re going to be investing in some real capability building and up-skilling. Then it’s around investment and resource intensity, and there’s – I think we’re getting a much better handle around relative ROIs around row asses of our investment around, improving our content on a number of our businesses optimizing pricing, getting the assortment, right, understanding the different assortment needs in the eCommerce channel or BOPUS et cetera, versus traditional brick and mortar. So, that gives you a sense. I think next week, we’ll give you some specific examples and John and J.D. will give you some examples of what they’re doing in both digital marketing and e-commerce as well as some ambition that we’ve set for ourselves. So, a lot more to come, but back to Niko’s earlier answer to Bill’s question. A part of that guide for next year is to give us again, a little bit of room for that investment. I continue to feel after more than a year at the desk that it is wise for us in the long-term to continue to bit by bit invest more against our brands and invest more in some critical capabilities in these areas of digital marketing and e-commerce. And then finally, you ask about brands, we’re definitely getting a sharper, not all of our brands are created equal. Not all of our brands have the same; I would say a right to win and kind of competitive moat and we are beginning to get more specific about which ones we will disproportionately invest in, obviously, I’m going to be a little bit more guarded in the early days about sharing that for competitive reasons. but over time, you’ll see that manifest as well.

[Peter Grom:]

Great. Thank you.

[Operator:]

Thank you. Our next question comes from Brad Thomas with KeyBanc Capital Markets. Please proceed with your question.

[Brad Thomas:]

Hi, thanks for taking my question. Congrats on a great quarter, a great year here looking forward to next week. I wanted to first maybe, drill in on the gardening side and was curious, maybe J.D., if you could share any details as you’re talking to your retail partners about how they, at this point, are planning for next spring and how you’re thinking about the selling process and how promotions might be different for your retail partners next spring?

[J.D. Walker:]

sure, Brad. thanks for the question. I’ll be glad to take that the – I’d say that the retail partners, our retail partners are signaling that they’re going to be aggressive going into the spring. I think that certainly, they’ve enjoyed a strong year as we have in our categories. So, they’re planning for that again next year. I think that what they’re signaling for the most part is setting the stores early, making sure that they’re ready for the season earlier initial shipments. So, I think they’ll come out of the gates very aggressively and we’re looking forward to that. We’re preparing for that. like us and what we’ve said today, they’re not really sure what the second half of the year looks like. So, they’re not extending any guidance or direction beyond the first – beyond the spring season, but I do believe that they plan to be very aggressive coming out of the gates and that’s across the board, all retailers. now, whether cooperating and I think we’ll be in great position.

[Brad Thomas:]

Great. Thanks, J.D. And if I could ask a question, John, on the pet side, I was wondering if you could just give an update on how business is performing on the consumables versus items that are maybe, more durable or discretionary. I think one might be able to argue that there’s an installed basis, an increased ownership of pets and that there’s perhaps a longer tail and more recurring revenue to achieve and I was just curious, your observation – how does different sides of your business are performing?

[John Hanson:]

Yes. Certainly, the 4% increase in pet ownership, it’s been a terrific tailwind for us and it continues to drive our business and we expect that to be able to carry through much of the first half until we in the back half. relative to consumables, it’s been very strong, dog and cat, small animal consumables have been very strong and we would expect, going forward for a lot to that to be sticky as pet ownership maintains higher levels than they were pre-COVID. Is that helpful?

[Brad Thomas:]

That’s very helpful, John. Thank you. and if I could squeeze one more in for the group or anybody that wants to tackle it. obviously, we’re seeing a number of inflationary pressures bubble up for – in the country. And I was wondering if there’s any way to quantify that in terms of perhaps what level of price increase you need to get through to offset what you’re starting to see on the inflationary side.

[Niko Lahanas:]

Yeah. It’s varying what I can tell you from a macro standpoint, we still see challenges on the labor and freight front. Some of the grains have gone up fairly dramatically, high single-digit, low double-digit type of increases in certain grains, but that’s kind of what we’re seeing on a more macro level. I’ll kick it over to our segment heads to get into more detail in terms of what they’re seeing.

[J.D. Walker:]

Sure, Niko. this is this is J.D. I’ll take that Brad, the – in terms of commodity cost pressures that we’re seeing Niko touched on grains; particularly, it’s millet, milo, and some flour, where we’re seeing the most acute increases for various reasons that millet, it was a poor harvest in the millet. Milo, we’re seeing increased demand from China and that’s having some cost pressures on us and the industry’s moving. We’re having to take costs there, not just us, but everyone in the category and we’re seeing that those costs, being implemented now at retail. the cost increases were going to effect in January. the NP&K that going to our fertilizer products. We’re seeing some slight deflation there. no escalation and pricing. We feel like we’re in a good position for the upcoming season. That market may move in the spring as the ag market starts to plant their crops. But by then, we will have produced most of ours for the season. So, we feel like we’re in a good position there. And then last in grass seed, it varies by variety. We’re seeing deflation in some of the varieties of grass seed and inflation, and others. but by and large, I think our only pinpoint here is for the most part in grass, or excuse me, in bird feed and we’re taking pricing there. and our pricing, sometimes we have to take surgical pricing in order to ensure that we’re covering our margins and producing, and making a profit in the category.

[Brad Thomas:]

That’s all very helpful. Thank you all so much.

[Operator:]

Thank you. Our next question comes from Carla Casella with JPMorgan. Please proceed with your question.

[Carla Casella:]

Hi. your inventory levels were a little bit lower than what we expected and I’m wondering how much is that might be, because of the supply chain issues and if you knew, have a sense for whether the supply chain issues will cut up – cut your sale store for the coming quarter or how much you could fall for it, because of supply chain issues.

[Tim Cofer:]

I’ll start. And I can kick it over to the segment heads, J.D. and John, Carla. you’re absolutely right and we mentioned it in our prepared remarks that we have had supply chain challenges primarily in keeping up with this robust and quite honestly, unprecedented spike in demand. I would say we’ve gotten our arms around the majority of it as we’ve turned into fiscal 2021, but some of those challenges and some of those shortfalls are going to continue into fiscal 2021. There are a number of places in our businesses, where once we saw that and felt like it was quite a trend the business heads John and J.D., our various general managers, Niko and I began to get pretty aggressive in capacity expansion plans, that will begin to manifest themselves in fiscal 2021. And that’s in a number of key growth businesses on both the pet side and on the garden side. So with the portfolios large and complex as ours, the mileage varies across the patch. But there is no question that capacity and inventory challenges continue here into of fiscal 2021. J.D., John, any additional.

[J.D. Walker:]

Sure, Tim. I’ll just build on your comments. There is no question inventory is down, first of all we’d like it to be. And that’s for a couple of reasons, one, we have had some supply chain challenges as mentioned, but also because consumption has remained incredibly strong. So while we are straining to keep up at the demand for the product is still there as well. And I would say that our teams are doing some –going to heroic efforts in order to maintain the product or build the product and maintain our fill rates at an acceptable level. Now we’re catching up, our in-stock levels are improving day-to-day. We feel like we’ll be in good position again, we’re in an off season now, but year-over-year demand is still pretty strong, but for the upcoming season, we feel like we’ll fix most of the issues there still may be a lingering issue or two where there is an imported product or where components are difficult to get, but that’s not just affecting us, it’s affecting other suppliers as well, by and large, I think we feel like we’re in good shape and it’s based on the heroic efforts of the team.

[John Hanson:]

Yes. This is John. Go ahead.

[Carla Casella:]

On the working capital front, given what’s going on with inventories. Also let’s say your payables they’re a little bit higher and that should normalize. So we could see a bigger use of working capital in the coming quarters as you rebuild inventory and pay down payables. Is that – am I reading that correctly?

[John Hanson:]

Yes. That’s quite intentional, we are focused on our cash conversion cycle. So we are taking a harder look at inventory receivables and payables and you can see the result of that the cash flow being up around 29% on the year. We have a real imbalance in our receivable and payables, and we’re looking to balance that out a little better going forward.

[Carla Casella:]

Okay, great. Thank you.

[Operator:]

Thank you. Our next question comes from Karru Martinson with Jefferies. Please proceed with your question.

[Karru Martinson:]

Good afternoon. Just wanted to get a sense of the product inventory at retail. What are retailers having on their shelves right now? And is that part of that pull forward here? Why we feel very comfortable with that stronger first half of the year?

[Tim Cofer:]

John, J.D.?

[John Hanson:]

Yes. From a pet side demand continues to be extremely strong, so we’re working through each customer in the best way to service as Tim mentioned, we’ve added – we continue to add capacity as we get into fiscal 2021. And we’ll continue to work that, we do see our domain – our fill rates improving and that’ll continue to improve. But through the first half really driven by the pet ownership, consumers demand is going to remain strong and retail inventories are a bit challenged because of that from the pet side.

[J.D. Walker:]

And on the garden side, while year-over-year our inventories are up slightly, our inventory metrics lag, consumption. So we wish we have more inventory in the store. And I think that, it goes to my earlier comments around product supply and just the demand for the product. So by and large though, if you’re asking, are we too heavy going into the season? We’re certainly not that, we wish there were more in the stores.

[Karru Martinson:]

Okay. And then when we look at the kind of the stress supply chain that you spoke to, when we look at the investments that are going to need to be made, where do those fall into the cadence of next year when we look at that CapEx spend? And then, what’s kind of the return, does the bottleneck gets addressed next year, or will this carry on for into the subsequent periods?

[Tim Cofer:]

Well, I mean, of course first is no one has a crystal ball, right, in terms of how long will this type of extraordinary demand continue. But if we take our best guess, which is obviously through the front half, as we lap the initial onset of the COVID pandemic, we’re expecting continued robust demand. And then as we lap into the back half, we see that softening and perhaps a little bit more on the garden side, given in addition to the COVID impact, as we shared with you it was – we think an almost ideal gardening season this year. Therefore, that’s what we’ve put in kind of our long range forecast to help us get to the answer of your question, which is, how does that capacity to demand ratio kind of shake out? The incremental capacity that we have invested in, in the last quarter and a half and we will continue to invest in, in fiscal 2021, I think in Niko’s comments, he guided to a rather large CapEx number that you heard of 70 to 80. It will differ by business unit, we’ll have some that are literally coming online as early as late Q1 into Q2 that incremental firepower of capacity. Some will come in more in the call the late summer fall. So towards the end of the year and some won’t be operational given lead times and the extent of building an automation until we actually enter into fiscal 2022, so it differs by product line. But I do feel good that we are taking the steps now to really have the type of firepower to grow and to capture upside demand going into 2021, 2022 and beyond.

[Karru Martinson:]

Thank you very much, guys. Appreciate it.

[Operator:]

Thank you.

[Friederike Edelmann:]

If we have time for – yeah, then we’re done. Okay, that was the last question.

[Tim Cofer:]

Well, very good. I want to thank everyone for joining us today on our earnings call. I also want to wish everyone a safe, happy, and healthy Thanksgiving holiday, and I encourage everyone to please join us next week, December 3, 1

[Operator:]

Ladies and gentlemen, this concludes today’s webcast. You may now disconnect your lines at this time. Thank you for your participation and have a great day.